As the recession bites and the government start to cut the levels of assistance to the poorest of our society and the banks are now being very difficult about lending to people who actually NEED the money we see a massive growth in what has come to be known as "Payday lenders".

We even find these companies advertising on daytime TV where they must think they can find people who are not in work or earning a decent wage.

These companies are only one step removed from loan-sharks as they target the people who are unable to get loans from any usual sources, and because of this condition they are able to charge astronomical rates of interest; in many cases over 2000% APR. ( Proper banks usually charge around 20% APR ).

What many also might not know - that might be considering taking a short term loan from such a company - should be aware that as a form of collateral these companies ask for a post-dated cheque, ( to the date the cash is meant to be repaid ) or they will ask for a banking direct debit to be set up that pays the capital sum PLUS interest back on the agreed repayment date.

If there are no funds in the person's bank account with which to pay this direct debit or if the cheque issued, bounces, then the debt rolls over with added compound interest until it very quickly becomes quite a large sum of money.

After a short time the people who may have taken out such a loan, who are unable to pay it back, may find that they are being chased by finance recovery companies and risk being made bankrupt for the cash outstanding.

These lenders are in fact aiming their services at people who are in debt and that is why they are lawfully able to charge such high rates of interest.

I would hope that anyone reading this posting - that is in that situation - might think VERY seriously about whether to get into the grip of such companies.

Comments please.

Last edited by papa_umau on Fri 20 Aug 2010, 11:18 am; edited 1 time in total

I too have noticed the rise and rise of companies like these and I actually know a few people that have used them. The main one, that is advertising on the TV, is called Wonga.com and it charges a typical yearly interest rate of 2689% APR.

I would think that anyone that might need cash in a hurry would be taking one heluva risk by going to this mob.

I actually wonder why the government have not stepped in here and shut these loan-sharks down.

Another one that might be worth mentioning is "doorstep" lenders as they too are able to charge very high rates of interest to their hard-up borrowers Companies like Shopacheque and Provident Cheques have been around for a very long time but they are now having a very lucrative run because of people either overspending or struggling to make the little money that have go as far as they need it to go.

All of these companies are offering loans to people that are unable to get them via the normal routes and while that might seem to be a good thing, if one looks more closely at the deals on offer one can easily see that they are VERY expensive contracts to set up and to service.

I would like to see a GOVERNMENT scheme whereby such short-term loans might be available to the people that need them which are set at rates of interest that do not simply get these cash-strapped folk into more debt.

I won't hold my breath waiting for that to happen, especially with this Tory government in charge.

The banks are now so nervous about what has been come to be known as "toxic" debts - brought on by the "sub-prime" lending debachle a few short years ago - that they are now only prepared to lend to people and companies that are either a very good risk or that are willing to put up securities against the capital sum borrowed.

If you actually NEED it and you are seen as the slightest bit risky you just don't get in nowadays. Because of this situation the "payday" lenders, the official "doorstep" lenders and even the loan-sharks are having a bonanza with their crazy interest rates.